Inequality slows economic growth

Wednesday, 10 December 2014

The Organisation for Economic Cooperation and Development released a report on Tuesday suggesting that higher levels of inequality slow economic growth, reports The Guardian. The research analysed data from all 34 of its wealthy member states. 

It estimates that if UK inequality had not increased in recent decades the economy would be 20% bigger. In contrast, lower levels of inequality in Spain, France and Ireland boosted their economies before the recession.

Increasing inequality between poor and lower middle class households was found to have the greatest negative effect on growth. 

The findings contradict decades of liberal economic consensus, and suggest that redistributive policies promote growth rather than hamper it. 

In other news the International Labour Organisation published a report on wages last week. It found that British workers had experienced the greatest real-terms wage deflation of all major G20 economies between 2010 and 2013. Real earnings in the UK fell more than in Portugal, Spain and Ireland, some of the worst hit eurozone economies.